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You are here: Home » Loan Modification » Archive by category "Principal Reduction"

RESET AND RECAST

Over the next 12-18 months, many homeowners are going to see changes to their mortgage payment. A few will see their payments go down but some will see a MAJOR increase.

 

The ones that see their payment go down are the ones that took an adjustable-rate loan. Many of them have been fearing their payment will go up, only to be pleasantly surprised that their payment will actually go DOWN since mortgage rates have dropped quite a bit since they took their loan out 5-10 years ago.

 

Others won’t be so lucky. One of the more popular loans made back in 2005 and 2006 was a loan that had a fixed rate for 10 years and then the loan resets and recasts. Reset means the rate is adjusted by adding what’s called a “margin” to an “index.” Let’s say your loan paperwork states that your loan will be a 4% for a set period of time, and then it resets to “LIBOR plus 2%.” “LIBOR” is a common index that lenders use. 2% would be the margin that would be added to whatever LIBOR is at when your mortgage resets. The good news is that right now LIBOR is less than 1%, so your new reset interest rate in this example would be a little less than 3%.

 

So if that was the only change, the person in this example would see their payment go down. However, the loan may also “recast.” If your loan was interest-only for those 10 years, it may convert into a principal-reducing loan, which could increase the payment quite a bit. But on top of that, it will also likely need to be paid off in 20 years (since you are 10 years into a 30 year loan). These two changes can REALLY spike your payment.

FHA REFINANCE OPPORTUNITY

Do you have an FHA loan where the rate is higher than today’s market rates? Then there is good news for you! Rates are still very, very low and it’s not too late to take advantage of them. And if you happen to have an FHA loan, there is a program you need to know about.

 

It’s called the “FHA Streamline Refinance,” and it’s only for borrowers that already have an FHA loan. They are very fast and simple to do. You can lower your rate and your payment and it’s a pretty easy process. There is no credit check, no employment verification and not even an appraisal! On top of that, the rate that FHA charges for PMI (private mortgage insurance) went down recently. So not only could you get a lower interest rate, but lower PMI, too.

 

There are some qualifications, but they aren’t too cumbersome: You must be current on your existing loan, it must be at least 6 months from the date you bought the home, you can’t take cash out, and it must reduce your mortgage payment by at least 5%. There are fees associated with this process, but you can usually roll them into your loan.

 

One thing I like to point out whenever anyone considers a refi is the payoff period. Some people refi if it will save them anything per month, even $50. But keep in mind that if you’ve had your loan for 5 years, and then you refi, you now won’t pay it off for another 30 years. So you always have to weigh the savings NOW against having to make 5 more years of payments at the end (IF you are planning to keep the loan and home for 30 years, which very few people do nowadays!).

 

2013 In Review

Back at the end of 2012, we were wondering if the market was going to be able to sustain the recent gains, or was it a “head-fake”? Many people were predicting that the “shadow inventory” was finally going to burst through in 2013 as banks finally released all the homes they were supposedly hanging onto. There were also predictions of a rise in short sales as people finally gave up hope that their bank would ever approve a “good” loan modification. We started the year with only 42 homes on the market in Brentwood. The surrounding towns also had very low numbers of homes for sale.
Inventory did rise in 2013, peaking at just over 140 homes in Brentwood in the first part of October, but then began to steadily fall again. We ended 2013 at less than 100 homes on the market. So the flood of bank-owned homes never materialized. In fact, bank-owned homes and short sales almost disappeared in 2013. This happened quite rapidly and we got back to regular sellers who had (some) equity. I attribute this shift from distressed sales to regular sales to two main factors. First, I heard of many people finally getting good loan modifications, even after multiple failed attempts, and some even with principal reductions. So they were able to stay in their home with an affordable payment.
The second reason is the rise in prices, which probably had more to do with this shift than anything. 2013 was one of, if not the BIGGEST gain in equity over any 12-month period. Prices went up anywhere from 20-30% depending on the area and how you figure it. This took a LOT of homeowners out of being upside-down and into having some equity.
So 2013 was great if you already owned a home, but distressing if you were looking to buy a home. So where will we go in 2014? And are we entering another bubble? You’ll have to wait for my next article for those answers.
If you have questions on this review or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

1099 Court Case

If you had a short sale, foreclosure, deed-in-lieu or loan modification with principal reduction in the last few years, this may interest you. In each of those situations I noted, you probably “enjoyed” some kind of principal reduction and you are probably wondering if your lender can pursue you for it. There is a wrinkle in regards to the issuance of a 1099 that I’ve been keeping my eye on that just got really interesting…

Let’s say that your lender tells you verbally, or even in writing, that they will allow the short sale, loan mod, whatever, to proceed, but they ARE going to pursue you for the deficiency at some point in the future. But then in the mail you later get a 1099-C from them, which is meant to advise the IRS (and you) that the debt was “cancelled” and that you may have to pay tax on it. Now, let’s put aside the TAX issue for a moment, but let’s look at what just happened. Your lender is telling you and the IRS that they have, wait for it….CANCELLED the debt. On top of that, you may have to pay tax on that CANCELLED debt. I’ve always wondered in that situation if the lender were to pursue you later, couldn’t you bring that 1099-C to court and show that the debt was, in fact, “cancelled?” There was a recent bankruptcy court case in Tennessee that is VERY interesting where the judge decided that the 1099-C “reflects” that the lender did, in fact, cancel the debt and incur a possible tax liability. The judge said that regardless of whether the borrower actually had to pay any tax on the forgiven debt was irrelevant.

Now, this court case doesn’t apply exactly to California, but at least it’s a start! So if you’ve received a 1099-C from your lender and then they are trying to pursue you for that deficiency, be sure to hire a good attorney and mention this court case: William Reed case (Eastern District of Tennessee, Bankruptcy Court, Number 12-30049, decided May 14, 2013).

I AM NOT A LEGAL OR TAX EXPERT. PLEASE CONSULT ONE IN REGARDS TO YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

BofA Principal Forgiveness

Bank of America may be willing to forgive some principal on your loan! See below for info from their website about this program:

“Bank of America has implemented an earned principal forgiveness approach to modifying certain loans eligible for its National Homeownership Retention Program (NHRP). The plan is designed for homeowners who are past due on their mortgage payments and owe considerably more on their loan than the current value of their home, when the loan is being considered for modification through the government’s Home Affordable Modification Program (HAMP).

How it works: In order to be eligible for principal forgiveness you must be at least 60 days late on your home loan payments. The remaining principal balance on your home loan must be more than 120% of the current value of your home. The maximum amount of principal forgiveness is 30% of the remaining principal balance on your loan, so long as this does not reduce your loan-to-value (LTV) ratio to less than 100%. The reason: the amount you owe is now equal to the value of your home and, moving forward, you’re ready to build positive equity.

Depending on your situation, the principal will be forgiven in equal amounts over 3 or 5 years. In the 5-year option, the amount forgiven in years 4 and 5 is conditional, based on the value of your home at that time. After being approved for principal forgiveness, it’s important to stay current on your new monthly payments, as falling behind could affect your eligibility.”

To find out if you qualify, go to: http://homeloanhelp.bankofamerica.com/en/nhrpannouncement.html

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Keep Trying Keep Your Home

In one of my kids’ Winnie the Pooh books, Pooh is encouraged to “try, try again” when faced with an obstacle. That is sage advice, and I’m going to urge some of you to “try, try again” with the “Keep Your Home California” program.

This is a program that the State of California created in response to a large amount of money they received from the Federal Government as part of the “Hardest Hit Fund.” When it was first released, only a few lenders were participating, and the qualifications were strict. Since then, more and more lenders have come on board, to where there are now roughly 100 lenders and loan servicers participating. This means that if you called before and were disappointed that your lender wasn’t participating, you should call back, because the odds are VERY good now that they now ARE!

And on top of all that, there have been some recent changes to the PRINCIPAL REDUCTION program that are very interesting. In the past, Keep Your Home California would match $1 for every $1 that your lender dropped your balance. That appears to be changing now, to where nearly all of the principal reduction money is coming from Keep Your Home California and not your lender, so lenders are obviously much more interested in that program all of a sudden! It’s basically free money to them (thanks, taxpayers!).

They have several programs to choose from: from money to help you catch up on your payments, principal reductions, relocation assistance, etc. So check in with them if you need some help with your mortgage. For more info, call 888-954-KEEP(5337) from 7 A.M. and 7 P.M. Mon-Friday, and 9 A.M. to 3 P.M. on Saturdays. Or check out their website at www.KeepYourHomeCalifornia.org. Their website is now interactive so you can find out online instantly if you may qualify for any of their programs.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Loan Mod Continued

Last week I talked about how some people think they shouldn’t even try a loan mod because they’ve heard that NO ONE is getting any principal reductions in their loan mod. I said there are two things to correct in that statement. The first one I covered last week, that there definitely ARE principal reductions happening in some loan mods. Not that often, but I AM seeing them happen.

The second thing I wanted to address is whether or not a loan mod is worth taking if they don’t drop your principal. Most people insist that they’ll only take a mod if their principal is dropped. I think that is faulty thinking to be so cut and dried about it. There are some instances where taking a mod where they only drop your rate can be worthwhile. Each person’s situation is different. The main thing I look at is whether you have to move anytime soon? If you don’t, and they drop your rate to the point where your payment becomes affordable, and it’s a fixed rate, principal-reducing loan with no balloon at the end, I would argue you need to consider seriously accepting that loan mod

But people argue with me that it makes no sense to keep paying on an upside-down home. To them, I respond as follows: If you owed $500,000 on a home worth $310,000, which loan mod would you accept? Option #1: Principal drops to $310,000, but they leave your rate at 6%. Option #2: Principal stays the same at $500,000, but they drop your rate to 2%. Most people would pick Option #1 and refuse Option #2. But the principal and interest payment on Option #1 is $10 HIGHER a month than Option #2! And keep in mind that BOTH of these loans get paid to $0 at the SAME TIME (I’m assuming both loans become 30 year loans again). So if you don’t HAVE to move, and the payment is affordable, and the only loan mod option your lender gives you is like Option #2, don’t be so quick to decline it.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Loan Mod Principal Reductions

I’ve heard clients tell me, “There is no sense in even trying for a loan mod because my buddy told me NO ONE is getting any principal reductions, so why try?” There are two things to correct here.

First, YES there are loan mods being done with principal reductions. I can verify this as FACT as I’ve reviewed many loan mods for free for people and I’ve seen the paperwork with my own eyes. Sometimes it’s very small, like $84 a month for every month you keep the loan current. Other times it appears to be a principal reduction, but it’s really still there lurking somewhere. Either as a balloon, or a silent lien on the property. Other times I’ve seen as much as $200,000 taken off the balance permanently. Yes, I said PERMANENTLY.

From the loan mods I’ve reviewed, those with principal reductions are still the minority. Maybe 10% of the loan mods I review include principal reductions. But that’s up from 0% from the mods I reviewed 3-4 years ago that had principal reductions, so it’s an improvement.

Each loan mod is different. It depends on your situation, who your servicer is, who the investor on the loan is, the balance of your loan, how far under-water you are, etc. But don’t believe blanket statements from people who claim to know about how ALL loan mods work. Have they really seen EVERY loan mod ever done? Contact me if you would like me to review your loan mod offer for free.

[Yes, I said there were TWO things to correct in the first line above. To be continued…]

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Free loan mod/short sale seminar

Updated for 2012. New loan mod/short sale laws and incentives will be discussed along
with the following topics:

  • Who is a good
    candidate for a loan modification vs. a short sale?
  • Can lenders
    pursue you after a short sale, foreclosure or loan modification?
  • Impact on your
    credit score and waiting period to buy another home.
  • Which lenders may
    pay you up to $30,000 to do a short sale.
  • Discussion of the
    “1099 issue” and the two big exceptions to it.
  • How the
    expiration of the Mortgage Forgiveness Act at the end of 2012 affects you.

June 12th at 6 pm or 7:30 pm or June 16th at 10 am or Noon. All will be the same
one-hour presentation including time for Q&A.

Presented by: Brian Sharp, Certified Distressed Property Expert.

««« MUST R.S.V.P. TO RESERVE A SEAT «««

Phone:
925.998.9712  Email:
Brian@SharpHomesOnline.com

 

HELP FOR UNDER-WATER INVESTORS

Hey, is that a pig I see flying by? Lots of news the last few weeks in regards to things that many people told me would NEVER happen. First it is HARPII letting people refinance their homes even if they are upside down. Then BofA announces they are going to be dropping hundreds of thousands of dollars off the principal for some lucky homeowners. And now, I’ve heard that investors that are under-water on their rental properties may be getting some help from the federal government. Investors may be able to get up to four loans modified starting in May under the new HAMP rules. The Treasury Department will be giving incentives to banks to lower interest rates, extend the terms, or even cut the principal balance. The investor must promise to rent the homes out if not rented already.

For a long time there has been intense resistance to help investors because many people believe investors helped drive the bubble up further than it should have. There is also the idea that the investors were taking a calculated risk in order to get a financial gain, so they should bear any of the downside risk. But those thoughts are now being overruled by other concerns. First there is the plight of innocent tenants getting evicted after the investor defaults, or the row after row of vacant homes dragging property values down. It’s to the point where now the government is thinking that vacant, blighted homes are a problem, no matter HOW they got to that point. They are thinking that cleaning up the mess will be good for everyone in the long run.

At the peak of the bubble, in some parts of California 30-40% of all home sales were investment purchases. Right now a little more than 20% of homes in foreclosure are to investors.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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